ACQUIRING DRAMAFEVER: OTT STRATEGIES OF WARNER BROS. ACQUIRING DRAMAFEVER: OTT STRATEGIES OF WARNER BROS. By Jennifer Moon Prepared for Development and Production Module W54300 MA Film, Television and Screen Industries University of Nottingham Spring 2016 Semester Word Count 9212 2 TABLE OF CONTENTS SUMMARY ................................................................................................. 4 OVERALL KEY FINDINGS .......................................................................... 5 RECOMMENDATIONS ............................................................................... 6 TIME WARNER DIVISIONS ......................................................................... 7 WARNER BROS ......................................................................................... 9 RECENT WARNER BROS. STRATEGIES ................................................. 20 WARNER BROS. FINDINGS ..................................................................... 21 DRAMAFEVER ......................................................................................... 22 DRAMAFEVER FINDINGS ........................................................................ 28 HOME BOX OFFICE – HBO ...................................................................... 29 INDUSTRY ANALYSIS: THE ECOSYSTEM ............................................... 31 INDUSTRY ANALYSIS: INDUSTRY DISRUPTIONS ................................... 33 INDUSTRY ANALYSIS: OTT STRATEGIES OF TIME WARNER DIVISIONS 35 FINDINGS OF INDUSTRY ANALYSIS ....................................................... 37 REFERENCES .......................................................................................... 38 3 SUMMARY On February 23rd 2016, Variety magazine reported that Warner Brothers acquired DramaFever, the 6- year-old streaming subscription service specializing in Korean drama television shows. This was after the New York based startup had already been purchased by Japan’s SoftBank for a reported $100 million the year previously, at which time, both Barry Diller’s IAC and Warner Bros. had also been in pursuit to acquire the service1. At first glance, this development may seem to be fairly straightforward: Warner Bros. gains control of the exclusive content that DramaFever has served its niche audience with while also acquiring the streaming technology of DramaFever. But within the business strategies of Warner Bros. lies the inseparable web of the overall strategies of Time Warner, in which this report will explore in greater depth. In particular, this news comes at a time when Warner Bros. parent company Time Warner has been vocal in recent investors earnings calls about the focus on looking at strategies both inside outside the traditional television ecosystem which includes their latest OTT (over-the-top – referring to content delivery over the internet without a multi-system operator) strategies2. This includes Turner’s (a division of Time Warner) overall strategy to innovate beyond the traditional ecosystem, through providing viewing experiences that drive engagement across all platforms3. The aims of this report is to analyze what the recent acquisition of DramaFever demonstrates about the current climate of Warner Bros. OTT focused strategies. The report examines layers of these strategies with specific focus on Warner Bros. and how the acquisition fits into the overall strategy of Time Warner. Warner Bros. position in the film industry will also be explored in order to contextualize the current challenges of the studio as well as examination of DramaFever’s attributes and strategies in order to analyze key insights that DF can contribute to Warner Bros. Key questions to be answered • What does the Warner Bros. acquisition of DramaFever say about the current trends of media conglomerates? • What factors drive Warner Bros. strategy to acquire DramaFever? • What can be attributed to the growth of DramaFever? • What is the current position of Warner Bros. in the film and television industry, and what challenges is the studio currently facing? • What challenges does Time Warner face within the rise of OTT services? • What other OTT services feed into the overall Time Warner strategy? This report provides an overview of the current OTT landscape, through exploration of the film and television industry in the United States to better inform strategic decisions related to ownership, delivery and distribution of content. By providing an introduction to emerging trends of dealing with the rapidly changing digital landscape, this report will inform those interested in gaining a working knowledge of digital platforms and delivery methods and how current challenges manifest themselves in the case of Time Warner. 4 OVERALL KEY FINDINGS • NEW ERA FOR MEDIA CONGLOMERATES: The acquisition of DramaFever by Warner Bros. signifies the latest trend of major studios purchasing startups that create and/or curate content and provide platforms for distribution and monetization of content. • LIMITATIONS OF MEDIA CONGLOMERATES: The DramaFever acquisition demonstrates the abilities and achievements of new startup platforms that major studios have difficulty replicating – particularly for building new technology platforms, creation of fresh content, and rapid execution of strategies for reaching niche audiences. • DISRUPTION OF SUPPLY CHAIN: Warner Bros. are acutely aware that new and innovative strategies must be put in place in order to stay competitive for viewership, as new technology and social platforms have disrupted the linear supply chain of previous content delivery. The new era of a non-linear digital content supply chain has proven a challenge for studios to retain control of how and when content is consumed as control has increased in the hands of the viewers. • DISRUPTION OF CURRENCY IN THE TELEVISION ECONOMY: With the increase of digital platform viewing, ratings providers such as Nielsen and Rentrak/ComScore struggle to create a new system of ratings that accurately captures digital platforms along with traditional ratings measurements. If an adequate measurement system for all platforms can be implemented successfully, it will influence strategic decisions of how ubiquitous to make content across multi-platforms and to what degree exclusive licensing will be retained by content creators. • TECHNOLOGY IS KEY: The rise of digital viewing for audiences requires utilization of underpinning technology that is capable of handling the traffic to adequately deliver content. Outsourcing of streaming technology is common due to media conglomerates unable to handle building the technology from scratch in a timeline that allows them to stay competitive amid the constantly changing trends of viewer behavior within the digital landscape. • EMPHASIS ON DIVERSIFIED CONTENT: More than ever due to the myriad of choice and control of the viewer, attracting audiences with content becomes more important. Warner Bros. has made television content creation and distribution a key strategy to meet the rising competition of digital viewing platforms amid their scarcity of major box office drawing franchises on the film side. 5 RECOMMENDATIONS • COLLABORATION NOT COMPETITION: The new non-linear system of supply chain creates endless opportunities to reach audiences. If major media conglomerates want to compete with smaller digital content creators/curators that provide new ways to distribute and monetize content, the existing platforms should work together in collaborative environments rather than strictly competitive environments as strategies based on linear supply chains cannot thrive with the constant influx of digital trends. Warner Bros. should embrace cross platform strategies in order to foster growth of viewer engagement, even if it means relinquishing some degree of control over content. • EXPLORE NEW REVENUE STREAMS: Relinquishment of control over content will require media companies to think outside of traditional revenue streams, and Time Warner’s focus on innovating beyond the traditional television ecosystem is a necessary step. Time Warner should continue to explore new ways of distributing and monetizing content and allow the smaller arms of recently acquired digital content creators/curators and distributors to experiment. • CROSS PROMOTIONAL OPPORTUNITIES: With a horizontal approach to spreading content, engagement strategies that include cross promotional opportunities is a must if Warner Bros. are to effectively leverage the cross platform nature of content delivery from the studio, its subsidiaries and its parent company’s other operating divisions. • ALLOW ORGANIC DEVELOPMENT OF RECENTLY ACQUIRED STARTUPS: DramaFever demonstrates that smaller startups have distinct opportunities for building new technology platforms, creation of fresh content, and rapid execution of strategies for reaching niche audiences. Warner Bros. should leverage the very abilities that initially attracted them to acquiring streaming sites like DramaFever by fostering continued organic development – best achieved by allowing autonomy in their operations and refrain from exercising the majority of control over strategy and development. Doing so will foster a culture of experimentation, creativity and innovation that smaller startups are better suited to handle than the major arms of Time Warner due to their smaller size and ability to execute changes faster. • SUPPORT DEVELOPMENT OF INDUSTRY STANDARD DIGITAL RATINGS: In turn, an area that Warner Bros. should retain some degree of control